Market Watch

Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.

Baking Bread

May 18, 2012

Market Watch with Alan Brugler

May 18, 2012

Baking Bread?

Wheat futures were the story of the week, surging 16.5% in Chicago and 15.6% in KC July. A combination of things drove the rally, including tighter projected world stocks in 2012/13, sub-freezing temps in northern France and Germany that could have damaged some grain, dryness in parts of southern Russia and a huge speculative net short position in wheat just begging to be slapped around. The baking reference comes from the much above normal temps in the Plains, with limited moisture. Winter wheat crop condition ratings dropped, and our work suggests that average yields are now below those utilized by USDA in the May reports. A cold front will bring a little rain and cooler temps into the central US this weekend, but the forecast remains above normal for temperatures through the end of the month. Weekly wheat export sales were stronger than expected, with several old crop cargoes booked despite the need to ship them before May 31 (end of the marketing year).

Corn prices jumped 9.38% in a single week. The cash market just wasn’t getting the corn to move, reflected in strong CIF basis values. Actual weekly export sales weren’t very exciting. Actual shipments are 93 million bushels behind year ago due to competition from feed wheat and DDG exports. Ethanol use is part of the bull story, jumping to a multi-month high this past week while ethanol stocks declined at the same time. Weather gets part of the credit for the rally as well, with hot and dry conditions causing second thoughts about 166 bushel yield estimates. It is early, but if there IS a problem the old crop bird in the hand is worth two in the new crop bush!

Soybeans were down 1 cent after losing 71 cents the prior week and 22 cents the week before. Three weeks equals a losing streak. Profit taking was a big factor after prices topped the $15 mark for the first time since 2008. The strong US dollar index also made prices go up in local currency terms even if they didn’t at the CBOT. USDA reported export sales for the week ending May 10th totaled 616,256 MT for 2011/12 and 57,072 MT for 2012/13 delivery. That was actually bearish because the total was smaller than pre-report estimates. Weekly exports have taken a contra-seasonal jump when compared to at least the past six years. Private exporters announced the sale of another 480,000 MT of soybeans to China for 2011/12 delivery on Thursday under the daily reporting system.

Cotton futures were just plain ugly, falling another 1.24% after being down 10.25% the previous week. Weekly export sales were again positive. Commitments, which are exports plus outstanding sales, are running 108% of year ago, while usually only 102% at this time of year. USDA said on May 10 that harvested acres should actually be larger than last year, despite a reduction in planting intentions. The global ending stocks forecast also calls for a major jump in ending stocks, and Chinese sources lowered predicted consumption by 1 MMT from previous forecasts. It is tough to sell textiles made from cotton which cost double what it cost the previous year into a global market where the EU is in recession, the US is growing slowly, and Chinese growth is slowing.

Commodity

Weekly

Weekly

Month

04/27/12

05/04/12

05/11/12

05/18/12

Change

% Change

July

Corn

$6.26

$6.20

$5.81

$6.36

$0.55

9.38%

July

CBOT Wheat

$6.50

$6.10

$5.97

$6.95

$0.98

16.46%

July

KCBT Wheat

$6.59

$6.27

$6.10

$7.05

$0.95

15.57%

July

MGEX Wheat

$7.79

$7.44

$7.26

$7.92

$0.66

9.05%

July

Soybeans

$14.94

$14.75

$14.06

$14.05

($0.01)

-0.07%

July

Soybean Meal

$428.40

$432.60

$408.50

$417.90

$9.40

2.30%

July

Soybean Oil

$55.53

$53.65

$52.24

$50.32

($1.92)

-3.68%

Jun

Live Cattle

$112.85

$115.38

$115.15

$119.53

$4.38

3.80%

May

Feeder Cattle

$148.78

$152.55

$149.70

$151.30

$1.60

1.07%

June

Lean Hogs

$86.60

$83.72

$85.30

$87.43

$2.13

2.49%

July

Cotton

$91.23

$87.99

$78.97

$77.99

($0.98)

-1.24%

July

Oats

$3.42

$3.40

$3.32

$3.40

$0.08

2.41%

July

Rice

$15.26

$15.21

$15.71

$15.18

($0.53)

-3.37%

Cattle futures are back to being bullish. Futures were up 3.8% for the week. Beef production YTD is down 3.0% from last year. Estimated production for the most recent week was down 0.8% from the same week in 2011, with slaughter down 21,000 head. Wholesale prices were up 1.8% in the Choice and 1.9% in the Select for the week, giving packers $3 or more to spend on cattle. Cash cattle trade did develop on Friday, with KS reported at $123 and Nebraska at $123.50. Those were up $1.50 to $2.00 from last week. The Friday afternoon USDA Cattle on Feed report was a little bull friendly, showing May 1 cattle on feed numbers at 99.4% of last year. That was the first month since May 2010 where numbers were smaller than the same month a year earlier. Placements were lighter than the average trade guess at 85.2% of last year. Marketings were 100.4% of year ago, a little stronger than some had expected.

Lean Hog futures were up 2.5% this past week. June futures are up $3.83 in two weeks. The pork carcass cutout value rose to $81.48, up 1.15% for the week. Ribs were the hot item, up 8% from the previous Friday. Year to date pork production is up 2.0% from last year. Production this past week was 5.4% larger than the same week in 2011 creating a challenge for packers to move the tonnage. The Cold Storage report on Tuesday will show us how well they were doing when prices were a little lower in April.

Market Watch: Livestock traders will begin the week reacting to Friday evening’s Cattle on Feed report. There is also a monthly Cold Storage report due on Tuesday will be show whether we’re building meat supplies or drawing them down. The Crop Progress report on Monday afternoon will get plenty of attention, particularly the winter wheat and corn crop condition ratings. Corn planting progress is expected to be well into the 90’s. Weekly export sales will get a little attention on Thursday. The May feeder cattle futures and options expire on Thursday. June futures options expire on Friday for the grains. The following Monday is the Memorial Day holiday in the US and the markets will not be open. Thus, Friday will typically be the start of a 4 day weekend for some trying to get a little more time away.

There is a risk of loss in futures and options trading.Such trading is not appropriate for all individuals. Past performance is not necessarily indicative of future results.Comments made in this article are in no way to be seen as an endorsement of futures and options trading.